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Evidence on the link between firm-level and aggregate inventory behavior

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  • Scott Schuh

Abstract

This paper describes the finished goods inventory behavior of more than 700 U.S. manufacturing firms between 1985-93 using a new Census Bureau longitudinal data base. Three key results emerge. First, there is a broad mix of production-smoothing and production-bunching firms, with about two-fifths smoothing production. Second, firm-level inventory adjustment speeds are about an order of magnitude larger than aggregate adjustment speeds due to econometric aggregation bias. Finally, accounting for time variation in the inventory adjustment speed due to fluctuations in firm size improves the fit of a traditional aggregate inventory model by one-fifth.

Suggested Citation

  • Scott Schuh, 1996. "Evidence on the link between firm-level and aggregate inventory behavior," Finance and Economics Discussion Series 96-46, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:96-46
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    Cited by:

    1. John D Tsoukalas, 2005. "Modelling manufacturing inventories," Bank of England working papers 284, Bank of England.
    2. Aubhik Khan & Julia K. Thomas, 2007. "Inventories and the Business Cycle: An Equilibrium Analysis of ( S , s ) Policies," American Economic Review, American Economic Association, vol. 97(4), pages 1165-1188, September.
    3. Jonathan McCarthy & Egon Zakrajsek, 2000. "Microeconomic inventory adjustment: evidence from U.S. firm-level data," Finance and Economics Discussion Series 2000-24, Board of Governors of the Federal Reserve System (U.S.).
    4. Brayton, Flint & Levin, Andrew & Lyon, Ralph & Williams, John C., 1997. "The evolution of macro models at the Federal Reserve Board," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 43-81, December.
    5. Humphreys, Brad R. & Maccini, Louis J. & Schuh, Scott, 2001. "Input and output inventories," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 347-375, April.
    6. Daniele Coen-Pirani, 2004. "Markups, Aggregation, and Inventory Adjustment," American Economic Review, American Economic Association, vol. 94(5), pages 1328-1353, December.
    7. Jonathan McCarthy & Egon Zakrajsek, 1998. "Microeconomic inventory adjustment and aggregate dynamics," Staff Reports 54, Federal Reserve Bank of New York.
    8. Ramey, Valerie A. & West, Kenneth D., 1999. "Inventories," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 13, pages 863-923 Elsevier.
    9. Tomiura, Eiichi, 2002. "Capacity constraint and changing seasonality over business cycles: evidence from plant-level production data," Economics Letters, Elsevier, vol. 76(1), pages 115-120, June.
    10. Egon Zakrajsek, 1997. "Retail inventories, internal finance, and aggregate fluctuations," Research Paper 9722, Federal Reserve Bank of New York.
    11. Michael Fratantoni & Scott Schuh, 2000. "Monetary policy, housing investment, and heterogeneous regional markets," Working Papers 00-1, Federal Reserve Bank of Boston.

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    Inventories;

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